Deputy Attorney General Rod Rosenstein made a candid admission last month: The Department of Justice couldn’t carry out its Yates Memorandum exactly as written.
Rosenstein announced Nov. 29 that the DOJ revised its cooperation credit policy under the Yates Memo issued in 2015. As a result, companies under federal investigation have more leeway in how much information they must turn over to the government, and on which employees, in order to get their penalties reduced.
The Yates Memo established a policy in 2015 under which DOJ attorneys would only offer companies credit for cooperating with an investigation if they produced all relevant information on any individuals who might be involved in corporate wrongdoing. The department recently revised its Justice Manual, however, to say DOJ attorneys may soften penalties against companies that “identify all individuals substantially involved in or responsible for the misconduct at issue.”
Speaking at a conference on the Foreign Corrupt Practices Act, Rosenstein said the Yates Memo’s “‘all or nothing’ approach to cooperation introduced a few years ago was counterproductive in civil cases.” Companies can now opt for a third category of cooperation where DOJ civil attorneys might offer “some credit” at their discretion when a company “honestly” and “meaningfully” assists with the government’s investigation.
Rosenstein gave an example of this cooperation compromise. A company under investigation for False Claims Act violations that provides the government a voluntary disclosure and “valuable assistance,” he said, might still get leniency even if it fails to identify lower-level employees who might be liable for misconduct.
If the DOJ no longer takes a hardline approach to company disclosures for credit, the deputy attorney general stressed that “pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation.” DOJ attorneys will award no credit whatsoever to companies that conceal individual wrongdoing by their senior management, he said.
For attorneys who represent defendants in federal investigations, the DOJ’s announcement largely acknowledges the way it has actually been carrying out the Yates Memo in practice.
“Federal practitioners know that, practically speaking, there was considerable daylight between the policy on individual accountability on paper and how it was actually applied in real-word criminal cases,” T. Markus Funk, who chairs Perkins Coie’s white-collar and investigations practice, said in an email. “More specifically, the DOJ tended to only press the ‘all-or-nothing’ approach on a case-by-case basis to gain leverage and certain tactical advantages.”
Michael Theis, a Denver-based partner at Hogan Lovells who leads the firm’s False Claims Act practice, called the Justice Department’s new stance “an acceptance of the practical reality that the Yates Memo could not be implemented exactly as it was written.”
Still, the Yates Memo had a chilling effect on some companies under federal investigation. The all-or-nothing cooperation approach created an environment where companies didn’t feel safe coming forward with information, Theis said.
They might be concerned that, despite their good-faith efforts to uncover all wrongdoing in their midst, government attorneys would conclude the companies failed to turn over relevant information on an employee — even one of relatively low rank and exposure — and revoke all credit.
Theis said it’s difficult to advise clients in that situation because they want to be certain of what they’ll get from cooperating prior to making that commitment.
Theis said the DOJ’s new policy change is “pretty subtle, pretty nuanced.” In criminal investigations, companies are no longer required to identify low-level employees who are unlikely to face prosecution. On the civil side, there is now a sliding scale of cooperation credit that DOJ attorneys can offer at their discretion for “meaningful assistance,” but “it remains to be seen precisely what that means,” Theis said.
The DOJ’s policy revisions do contain some significant changes for False Claims Act matters, Theis said. The government now has more flexibility to negotiate releases to individuals caught up in civil cases, which it did routinely before the Yates Memo all but prohibited the practice, Theis said. The DOJ also scaled back its rule that the government would seek civil cases against individuals “notwithstanding their ability to pay.” A defendant’s ability to pay penalties will now be taken into account when the DOJ selects targets, but it’s yet unclear how the DOJ will make those determinations.
In theory, the DOJ might find companies less eager to cooperate — at least in the early stages of federal investigations — because its new stance could reduce the threat companies perceive from whistleblowers, Funk said.
“Human nature dictated that, under the old policy, current and former employees fearing that the company will turn them over to the DOJ regardless of culpability frequently tried to get to the DOJ first,” Funk said. “This, in turn, caused many companies to err on the side of more immediate cooperation. So in this sense the more relaxed policy may actually disincentivize companies from more immediate cooperation.”
“On the other hand,” Funk continued, “the prospect of a more streamlined investigation and more predictable cooperation credit makes self-disclosure more palatable. In short, I would not be surprised to see that, when we reflect on 2019 statistics, the revisions’ real-world effect will be a wash.”
— Doug Chartier